Basics of Customs Duty M

K.S.Sreekanth.M.
Com,
M.Phil, NET-JRF, MBA
Assistant professor
PG-Dept. KIMSR
Basics of Customs Duty:

Customs Duty is Duty payable on Import into India and Export out of India.
Customs is an authority in a country responsible for levying and collecting Customs Duties and for
controlling flow of goods in to and out of a country. They have always formed one of the most
important sources of public revenue in all civilized nations.
The term customs derived from the term CUSTOM which means habitual activity usually
transmitted from one generation to another. It was practice of a trader who brings the goods to a
particular kingdom from other kingdoms; use to offer gifts to king for allowing him to sell his goods
in that kingdom. In modern days these gifts are collected by the Government in the form of duties on
import and export.
The Customs Act was enacted by the parliament of India in the year 1962 as per the list I of the union
list. The customs act regulates import and export, protecting the indigenous industries from other
countries goods & services.
The Central Government of India has power to make rules under section 156 of customs act and also
has the power to issue notification from time to time for the purpose of smooth functioning of law.
As per the section 157 of the Customs Act -1962, Central Board of Excise and Customs (CBE&C) has
been empowered to make regulations.
Rules of Customs: Issued by Central Government of India and It has to be approved by parliament.
Regulations of Customs: Issued by CBEC and need not be approved by parliament.
K.S.Sreekanth.M.Com,
Assistant professor
PG-Dept. KIMSR
Types of Customs Duty:
Type of custom duties:

1. Basic customs duty (BCD): It is the duty Levied under the section-section12 of the
customs act, 1962. It is liveable on any imported/export goods.
2. Additional customs duty under section 3(1) of the Customs Tariff Act,
1975(countervailing
duty
(CVD):
It is the duty Levied on any imported article. Countervailing duty is equal to Excise
duty for the time being in force leveable on a like article if produced or manufactured in
India.
Assistant professor
PG-Dept. KIMSR
Rate of excise duty leviable on a like article if produced or manufactured in India

(except in case of alcoholic liquor for human consumption for which rate of additional
duty is notified by the central government).EC and SHEC leviable on additional duty
of customs are exempt.
3. Education cess (EC): Levied on imported goods. Rate of cess 2% on aggregate of
customs
duties leviable on such goods. Education cess is computed
on total of BCD and CVD amount.

4. Secondary and Higher Education cess (SHEC): Levied on imported goods. Rate of cess
1% on aggregate of customs duties leviable on such goods. Secondary and Higher
Education cess is computed on total of BCD and CVD amount.
5. Special CVD under section 3(5) of the Customs Tariff Act, 1975: It is the duty Levied
on any imported article to counter-balance the sales tax, VAT, local tax or any other
charges for the time being in force leviable on a like article on its sale, purchase or
transportation in India. Rate as notified by the Central Government, but not exceeding
4%.EC and SHEC excluded from computing special CVD.
6. Protective duties: A duty imposed on imported goods for the protection of the interests
of any industry established in India on the recommendation of Tariff Commission. It is
effective only and inclusive of the date, if any, specified in the First Schedule of the tariff
[Sections 6 and 7].
7. Safeguard duty: Duty is levied if the Central Government is satisfied that:
(a) Any article is imported into India in increased quantities; and
(b) Such increased importation is causing or threatening to cause serious injury to domestic
industry.
Education cess and secondary and higher education cess is not payable on safeguard duty.
8. Anti-dumping duty:
Where any article is exported by an exporter to India at less than its normal value, then, upon
the importation of such article into India, the Central Government may impose an anti-dumping
duty not exceeding the margin of dumping in relation to such article.
Sources of Custom Law
The study of Indian custom law is a combination of Basic custom act of 1962 and custom tariff
act of 1975 and, Notifications, circulars, trade notice and case laws.
Assistant professor
PG-Dept. KIMSR
Basic Customs act 1962:
Basic custom act of 1962 contains the provisions covering import and export duty imposed on
import and export of the goods.
Custom Tariff act of 1975:
Custom Tariff act of 1975 contains the provisions relating to various types of custom duties
payable and gives the classification of imported and export goods.
Rules and regulations issued by customs act of 1962 and customs valuations rules of 2007
LEVY OF CUSTOMS DUTY
The Custom act 1962 applies to the whole of India. India includes territorial waters of India.
Duties of customs shall be levied
At such rates as may be specified under the Customs Tariff Act, 1975, or any other law for the
time being in force on goods imported into and exported from India.
Customs duty is charged on goods and not on the person importing them or paying the duty.
The goods shall be such as are imported to or exported from India. Being such, it is expected to
be passed on to the buyer.
It may, however, be noted that no duty is levied on pilfered goods, damaged goods and
destroyed goods.
Rates of duty: The rates at which duties of customs shall be levied under the Customs Act 1962
are specified in the First and Second Schedules of the Customs Tariff Act of 1975
Preferential rate of duty: If the goods are imported from the preferential areas [as notified by
the Central Government], then a lower preferential rate of duty will be applicable on such
goods subject to the fulfilment of specified conditions.
Standard rate of duty: In any entry, if no preferential rate of duty has been notified, the
standard rate of duty shall be applicable.
TAXABLE EVENT IN CASE OF IMPORTS

In case of goods cleared for home consumption: Import of goods commences when they
cross the territorial waters, but continues and is completed when they become part of the mass
of goods within the country; the taxable event being reached at the time when the goods reach
the customs barriers and bill of entry for home consumption is filed.
In case of goods cleared for warehousing: In case of warehoused goods, the goods continue
to be in customs bond. Hence, import takes place when the goods are cleared from the
warehouse. The customs barriers would be crossed when they are sought to be taken out of the
customs and brought to the mass of goods in the country.
Assistant professor
PG-Dept. KIMSR
TAXABLE EVENT IN CASE OF EXPORTS

Export of goods is complete when the goods cross the territorial waters of India. If ship sinks within
the territorial waters, export is not complete.
NOTE:
1. India (i.e. Territorial Waters):
The term India is an inclusive definition and includes not only the land mass of India but also
Territorial Waters of India. The territorial waters extend to 12 nautical miles into the sea from the base
line. Therefore, a vessel not intended to deliver goods should not enter these waters.
2. Indian Customs Waters:

The term Indian Customs Waters means the waters extending into the sea up to the limit of
contiguous zone of India under section 5 of the Territorial Waters.
Indian Customs Waters extend up to 24 nautical miles from the base line. Thereby, Indian Customs
Waters cover both the Indian Territorial Waters and Contiguous Zone as well. Indian Territorial Waters
extend up to 12 nautical miles from the base line whereas Contiguous Zone extended to a further 12
nautical miles from the outer limit of territorial waters.
3. Goods
Customs duty is on goods as per section 12 of Customs Act.
The duty is payable on goods belonging to Government as well as goods not belonging to Government
Goods included
(a) Vessels, Aircrafts and Vehicles
(b) Stores
(c) Baggage
(d) Currency and negotiable instruments and
Assistant professor
PG-Dept. KIMSR
(e) Any other kind of movable property.
3. Export: The term export means taking out of India to a place outside India.
4. Export goods: means any goods, which are to be taken out of India to a place outside India.
5. Import: The term import, means bringing into India from a place outside India.
6. Imported goods: means any goods brought into India from a place outside India but does not
include goods which have been cleared for home consumption.
7. Dutiable Goods:
The term is defined to mean any goods which are chargeable to duty and on which duty has not been
paid. It means to say that the name of the product or goods should find a mention in the Customs
Tariff Act.
Circumstance under which no duty will be levied

i) No duty will be levied on pilfered goods under section 13 of the Customs Act. If any imported
goods are pilfered after the unloading thereof and before the proper officer has made an order for
clearance for home consumption or deposit in a ware house, then the importer shall not be liable
to pay the duty leviable on such goods.
ii) No duty will be levied when the goods are damaged or deteriorated before or during the course of
their unloading.
iii) No duty will be levied in case of warehoused goods, when the goods are damaged before their
actual clearance.
iv) No duty will be levied in case of goods lost or destroyed due to natural causes like fire, flood, etc.
such loss may take place at any time before the clearance of goods for home consumption.
v) No duty will be levied in case of goods abandoned by importers. Sometimes it may so happen that
importer is unwilling or unable to take delivery of the imported goods due to the following
reasons:
Valuation for customs duty:

Custom duty is payable as a percentage of value called assessable value.
Assistant professor
PG-Dept. KIMSR
Methods of valuation:
Tariff value method
Transaction value method
Tariff value method:
CBEC may fix tariff values for any class of imported goods or export goods, having regard to the trend
of value of such or like goods by notification in the Official Gazette if it is satisfied that it is necessary
to do so. Where any such tariff values are fixed, the duty shall be chargeable with reference to such
tariff value.
Transaction value method:

i.
Valuation of imported goods: The value of the imported goods shall be the
transaction value of such goods.

In case of imported goods, the transaction value shall be
the price actually paid o payable for the goods

when sold for export to India
for delivery at the time and place of importation
where the buyer and seller of the goods are not related and
price is the sole consideration for the sale
However in this case also further conditions as may be specified in in the rules made in this
behalf. Such transaction value also includes

Commission and brokerage, except buying Commission, if not already included in the invoice
price
Cost of container which are treated as being one with the goods for customs purposes, if not
already included in the invoice price.
Cost of packing whether labour or materials, if not already included in the invoice price.
Materials, components, tools, dies, moulds, and consumables used in production of imported
goods, supplied by buyer directly or indirectly, free of charge or at reduced cost, to the extent
not already included in price.
Engineering, development, art work, design work, plans and sketches undertaken elsewhere
than in India and necessary for production of imported goods, to the extent not already
included in price
Royalties and license fees relating to imported goods that buyer is required to pay, directly or
indirectly, as a condition of sale of goods being valued.
Assistant professor
PG-Dept. KIMSR
Value of proceeds of subsequent resale, disposal or use of goods that accrues directly or
indirectly to seller (i.e. to foreign exporter).
All other payments made as condition of sale of goods being valued made directly or to third
party to satisfy obligation of seller, to the extent not included in the price.
Cost of transport up to place of importation.
Loading, unloading and handling charges associated with delivery of imported goods at place
of importation [These are termed as landing charges and are to be taken as 1%].
Cost of insurance.
Exclusions from Assessable Value

Charges for construction, erection, assembly, maintenance or technical assistance undertaken
after importation of plant, machinery or equipment
Cost of transport after importation
Duties and taxes in India
Other payments from buyer to seller that do not relate to imported goods are not part of the
customs value.
Demurrage charges payable to port trust authorities for delay in clearing goods are not to be
added.
PROBLEMS
1. Manaswi Ltd., an actual user imports certain goods from USA, at Chennai port, at cost of $1, 00,000
FOB. The other details are as follows:
a.
b.
c.
d.
e.
f.
g.
Packing charges: $22,000.

Sea freight to Indian port: $28,000.
Transit insurance: $10,000.
Design and development charges paid to a consultant in USA by importer: $9,000.
Selling commission to be paid by the Indian importer: Rs. 5,000.
Rate of exchange announced by RBI:Rs.Rs.40.60/$.
Rate of exchange notified by the Central Board of Excise and Customs:Rs.Rs.40.70/$.
Rate of basic custom duty: 10%, Additional Customs Duty: 14% & Additional Custom Duty: 4%
Compute the assessable value of the imported goods and the basic customs duty payable.
Problem: 2
Assistant professor
PG-Dept. KIMSR
The following information is furnished by Mr.Ramesh on 8th June 2013, 2 respects of articles imported
from USA in the month of April 2013.
FOB value
$40,000
Exchange rate
$1 =Rs.45
Air freight
$7000
Insurance charges
Not known
Commission & Brokerage paid to Indian Agent
$ 400
Returnable Container Charges included in FOB
$ 150
Landing charges
Rs.1,000
Basic customs duty
10%
Excise duty chargeable on similar goods in India as per tariff rate
16%
Additional duty of customs u/s 3(5) of the Customs Tariff Act, 1975
As applicable.
Calculate the total customs duty payable by Mr.Ramesh
Problem: 3
A consignment is imported by air. CIF price is 2,000 Euro. Air freight is 550 Euro and insurance cost is
Euro 50. Exchange rate announced by CBE&C as per customs notification is 1 Euro = Rs. 55. Basic
customs duty payable is 10%. Excise duty on similar goods produced in India is 14%. Education cess
and special CVD as applicable. Find value for customs purpose and total customs duty payable.
Problem: 4
M/s Premium Industries Ltd., has imported a machine from Japan at an F.O.B. cost of 1,00,000 yen
(Japanese). The other expenses incurred were as follows:
i.
ii.
iii.
iv.
Freight from Japan to Indian port 10,000 yen;

Insurance paid to insurer in India Rs. 5,000;
Designing charges paid to consultancy firm in Japan 15,000 yen;
M/s Premium Industries Ltd. spent Rs. 50,000 in India for development work connected
v.
vi.
with the machine;

Transportation cost from Indian port to factory Rs. 15,000;
Central government has announced exchange rate prevailing in the market was 1 yen = Rs.
vii.
0.40. However the exchange rate prevailing in the market was 1 yen = Rs. 0.4052
M/s Premium Industries Ltd. made payment to the bank based on exchange rate of 1 yen =
viii.
Rs. 0.4150,
The commission payable to the agent in India was @5% of F.O.B. price in Indian rupees. The
rate is BCD @10%. Similar goods are subject to 12% excise in India. Education cess and
special CVD is as applicable. Find the customs duty and other duties payable.
Problem: 5
Assistant professor
PG-Dept. KIMSR
CIF value of imported goods is Rs. 10, 00,000. Basic Customs duty payable is 10%. If the goods were
produced in India, excise duty payable would have been 12%. Education Cess is 2% and SAH
Education Cess is 1 %. Special CVD is payable at appropriate rates. Find the Customs duty payable.
Problem: 6
CIF value of imported goods is $ 100000. Air freight $30000, Insurance cost $1000 and exchange rate
announced by CBEC is $ = Rs.50. Basic Customs duty payable is 10%. If the goods were produced in
India, excise duty payable would have been 12%. Education Cess is 2% and SAH Education Cess is 1
%. Special CVD is payable at appropriate rates. Find the Customs duty payable.
Problem: 7
Problem: 8
Exfosis Ltd., an actual user imports certain goods from USA, at Mangalore port, at cost of $1, 00,000
FOB which includes:
a. Packing charges: $22,000.
b. Local Taxes in India $2000
c. Transit insurance after Import: $10,000.
d. Cost of durable & reusable container $3000.
e. Rate of exchange notified by the Central Board of Excise and Customs: Rs.60/$.
Sea freight to Indian port: $28,000 not included in FOB. Rate of basic custom duty: 10%, Additional
Customs Duty: 12% & Additional Custom Duty: 4%
Compute the assessable value of the imported goods and the basic customs duty payable.
Problem: 9
CIF value of imported goods is Rs. 5, 00,000. Basic Customs duty payable is 10%. If the goods were
produced in India, excise duty payable would have been 12%. Education Cess is 2% and SAH
Education Cess is 1 %. Special CVD is payable at appropriate rates. Find the Customs duty payable.
Problem: 10
Assistant professor
PG-Dept. KIMSR
Problem: 11

Basics of Customs Duty M

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K.S.Sreekanth.M.

Basics of Customs Duty:

Types of Customs Duty:

Type of custom duties:

Rate of excise duty leviable on a like article if produced or manufactured in India

duties leviable on such goods. Education cess is computed

on total of BCD and CVD amount.

TAXABLE EVENT IN CASE OF IMPORTS

TAXABLE EVENT IN CASE OF EXPORTS

2. Indian Customs Waters:

Circumstance under which no duty will be levied

Valuation for customs duty:

Transaction value method:

transaction value of such goods.

the price actually paid o payable for the goods

behalf. Such transaction value also includes

Exclusions from Assessable Value

Packing charges: $22,000.

Freight from Japan to Indian port 10,000 yen;

with the machine;

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